UAE Trusts and Foundations for Tax-Efficient Wealth Preservation
While trusts have long been established in global legal systems, the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) introduced them more recently. These free zones provide their own bespoke legal frameworks for trust management, offering both tax-efficient wealth protection and growth.
What is a Trust?
A trust, under Common Law as applied in ADGM and DIFC, is a legal relationship between three parties: the settlor, the trustee, and the beneficiary. The settlor contributes assets to the trust, which the trustee manages for the benefit of the beneficiary. The trustee holds legal title, while the beneficiary is the ultimate owner.
Foundations – A Trust Alternative
In addition to trusts, ADGM has promoted foundations as a powerful tool for wealth and estate planning, especially for family offices. Foundations combine features of both trusts and corporations, with directors managing assets and a perpetual legal existence, offering protection from external claims, such as bankruptcy or forced heirship laws. Similarly, the DIFC has its own foundation statute.
Trust Taxation in the UAE
Trusts in the UAE are not subject to income tax, as only oil companies and foreign bank branches are taxed. However, the residency of the trustee plays a crucial role in determining the trust’s tax status. Trustees in the UAE can ensure the trust remains free from taxation, even if the beneficiaries reside outside the UAE. ADGM and DIFC trusts may be taxed in jurisdictions where the trustees or beneficiaries are residents.
Choosing a Trustee
Selecting a trustee is key to ensuring effective wealth management. In the UAE, professional corporate trustees offer stability and good governance, fulfilling fiduciary duties to the beneficiaries. Trustees must also communicate effectively with beneficiaries and, if appointed, a protector who can advise or replace trustees.
Trust Duration and Perpetuity
In the UAE, there are no restrictions like the 21-year rule commonly found in other jurisdictions. Both ADGM and DIFC trusts can last indefinitely. Foundations in ADGM and DIFC also have perpetual existence, ensuring long-term asset protection.
Trusts for High Net-Worth Individuals
For those with international assets and families, tax treaties play a significant role in determining a trust’s residency for tax purposes. With the right planning, UAE-based trusts and foundations can help preserve wealth while minimizing tax obligations, even when trustees or beneficiaries reside in multiple jurisdictions.
At Precision Legal, we provide expert advice and support for setting up and managing UAE-based trusts and foundations, ensuring that your wealth is preserved and protected with the most tax-efficient strategies available.
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